UKRAINE SECOND EXPORT DEVELOPMENT PROJECT ......2 finance to private exporting enterprises (Beneficiary Enterprises). Ukrexim, as the Borrower of the IBRD Loan, will wholesale the

UKRAINE

SECOND EXPORT DEVELOPMENT PROJECT (EDP 2)

(LOAN NUMBER 4836-UA)

OPERATIONS MANUAL

FOR

PARTICIAPTING BANKS

June 29, 2006

E1343 Revised

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1

TABLE OF CONTENTS

I. INTRODUCTION............................................................................................................... 1

II. CREDIT OPERATIONS SEQUENCE............................................................................... 4

III. SUBSIDIARY LOANS (Loan Agreements between Ukrexim and PBs)........................... 5

III.1 Subsidiary Loan Terms and Conditions.................................................................. 5

III.2. Subsidiary Loan Agreement - Process Flow........................................................... 8

IV. SUB-LOANS (Loan Agreements between PBs and Sub-borrowers)................................. 9

IV.1 Sub-Loan Terms and Conditions............................................................................. 9

IV.2 Sub-Loan Documentation ..................................................................................... 11

IV.3 Sub-Loan Review.................................................................................................. 11

IV.4 Sub-Loan Process Flow......................................................................................... 13

Appendix IV.A Credit Application Form.................................................................. 14

V. ENVIRONMENTAL REVIEW PROCEDURES............................................................. 22

VI. PROCUREMENT PROCESS........................................................................................... 41

VI.1 General .................................................................................................................. 41

VI.2 Procurement through Commercial Practices and Thresholds ............................... 41

VI.3 ICB(International Competitive Bidding) --For Goods and Works contracts above US$4 million equivalent.................................................................................. 42

VI.4 ICB Process Flow.................................................................................................. 44

VII. DISBURSEMENT PROCESS.......................................................................................... 45

VII.1 Disbursement Process For Sub-Loans .................................................................. 45

VII.2 Disbursement Process Flow .................................................................................. 46

Appendix VII.A SAMPLE DISBURSEMENT REQUEST................................... 47 Appendix VII.B: IBRD Negative List (List of Items Ineligible for Financing under the EDP 2) ..................................................................................................... 49

VIII. ROLE OF THE PROJECT IMPLEMENTATION UNIT ................................................ 50

Appendix VIII.A PB Reporting to the PIU – Sample Forms ................................... 52

I. INTRODUCTION 1. The primary objective of the Second Export Development Project (EDP 2), under which a loan is extended to Ukrexim by the International Bank for Reconstruction and Development (IBRD) is to provide medium and long-term working capital and investment

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finance to private exporting enterprises (Beneficiary Enterprises). Ukrexim, as the Borrower of the IBRD Loan, will wholesale the EDP 2 funds to a group of private banks selected according to a set of pre-qualification and final eligibility criteria. The on-lending will be carried out by means of subsidiary loan agreements entered into by Ukrexim with selected banks (Participating Banks--PBs). The final eligibility criteria and subsidiary loan terms and conditions are detailed in Section III of this manual. The PBs in turn will make sub-loans to Beneficiary Enterprises satisfying a set of eligibility criteria, according to agreed sub-loan terms and conditions (Section IV) and environmental (Section V) and procurement (Section VI) guidelines. It is important to note that, if a PB receives funding from Ukrexim under a sub-loan, later determined by Ukrexim or IBRD to be in violation of the sub-loan terms and conditions, environmental or procurement guidelines applicable to the EDP 2, the PB would need to reimburse the funding received to Ukrexim/IBRD. 2. The "Operations Manual" presented here is specifically for the use of the PBs. The purpose of this manual is to introduce the PBs to the decision-making process during the implementation of the EDP 2. In addition to this process (further detailed in Section II of this manual), the PBs have specific duties and responsibilities to ensure the successful implementation of the project. These responsibilities relate to sub-project/sub-loan evaluation procedures, environmental review procedures, applicable procurement procedures and progress reporting requirements. 3. Evaluation of Sub-loan Applications/Sub-projects. Evaluation of the sub-loan applications and sub-projects submitted by the sub-borrowers for financing under the EDP 2 is a critical functional responsibility for the PBs. 4. Sub-Project Environmental Review. The PBs will also be responsible for environmental classification of sub-borrowers/sub-projects, and for ensuring that each sub-loan/sub-project proposal includes an evaluation of its environmental impact and clearance documentation from the local authorities. The PBs will also have to monitor that environmental remedies, agreed under a sub-loan agreement, are indeed carried out. Section V of this manual contains a summary of the applicable environmental review procedures. 5. Verification of the Procurement Process. The Beneficiary Enterprises have to conduct the actual procurement of goods and civil works to be financed under EDP 2 sub-loans according to the IBRD’s Procurement Guidelines. A summary of the procurement process is presented in Section VI of this manual. It is the responsibility of the PBs to ensure that the procurement process followed by the Beneficiary Enterprises conforms to these guidelines. 6. Coordination of the EDP 2 and Reporting of Information to the Project Implementation Unit (PIU). The overall administrative coordination of the EDP 2, and general information management, is the responsibility of the Project Implementation Unit (PIU) which has been established within Ukrexim; more details about the role of the PIU are given in Section VIII of this manual. Quarterly progress reports and semi-annual and annual external audit reports should be sent by each PB to the PIU. The PIU, which is responsible for the collection of these returns and reports, will forward them to the IBRD.

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7. In addition to the above, the PBs must send to the PIU, for each sub-loan, a quarterly sub-loan progress report in the form of a sub-loan summary; the report, which should be in both hard copy and electronic form, should be submitted to the PIU within 14 days following the end of the quarter. The PBs must regularly contact with the PIU on behalf of the Beneficiary Enterprises, in terms of transmitting procurement packages, no-objections and copies of actual transaction documents, like shipping documents, letters of credit etc. Proforma regular reports, which include the minimum information to be provided by the PBs, can be found in Section VIII, Appendix VIII.A to this manual and an electronic version (Excel spreadsheet) is provided with this Operations Manual.

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II. CREDIT OPERATIONS SEQUENCE

Sub-loan Subsidiary LoanAgreements Agreements

UkrExim

Disbursement requests

Quarterly Sub-loansummary& compliancereporting

Withdrawal EDP2request Agreeement

All sub-loansrequiringprior review

All procurement packagesrequiringprior review

BeneficiaryEnterprises

ParticipatingBanks(PBs)

IBRD

ViaPIU

PIU

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III. SUBSIDIARY LOANS (Loan Agreements between Ukrexim and PBs)

III.1 Subsidiary Loan Terms and Conditions

The following terms and conditions will apply to the subsidiary loan agreements to be entered into between Ukrexim and PBs.

A. TERMS

• Initial and continued compliance with the eligibility criteria for PBs; • US dollar denomination; • Maturity of the subsidiary loan of up to 6 years with up to 3 years

grace; • Interest rate being the sum of the cost of World Bank funds to

Ukrexim plus an onlending margin reflecting (a) Ukrexim’s administrative costs; and (b) a credit risk margin;

• One-time front-end fee, commitment fee, prepayment fee and other payments are to be payable by the PB according to the Subsidiary Loan Agreement;

• The funds available to PBs will depend upon the availability of funds to Ukrexim from the World Bank;

• PBs will be responsible for ensuring that the sub-borrowers comply with the World Bank's procurement rules for the procurement of goods and works under EDP 2 sub-loans, and applicable Ukrainian environmental legislation/regulation;

• PBs will provide a full set of documentation for all sub-loans to Ukrexim in order to enable Ukrexim to maintain all project records and make them available for ex-post review by the World Bank or by external auditors as necessary.

• The right of a PB to use the proceeds of its respective subsidiary loan shall be:

o suspended upon failure of such PB to perform any of its

obligations under its Subsidiary Loan Agreement or to continue to be in compliance with all legal and regulatory requirements applicable to its operations and;

o terminated if such right shall have been suspended pursuant to the above paragraph for a continuous period of sixty (60) days.

B. CONDITIONS

• Only PBs which are in initial and continued compliance with the eligibility criteria stipulated in the Subsidiary Loan Agreement can participate in the EDP 2 as PBs.

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• Each respective PB shall undertake to:

o carry out all activities under its Subsidiary Loan Agreement and conduct its operations and affairs in accordance with appropriate financial standards and practices, with qualified management and staff in adequate numbers and in conformity with the investment and lending policies and procedures referred to in this Operations Manual and provide, promptly as needed, the funds, facilities, services and other resources required for the purpose;

o make Sub-loans to Beneficiary Enterprises on the terms and conditions

set forth in this Operations Manual including, without limitation, the terms and conditions set forth in the Section IV.1;

o exercise its rights in relation to each such Sub-loan in such a manner

as to protect its interests and the interests of Ukrexim, the Ministry of Finance of Ukraine (the Guarantor) and the IBRD, comply with its obligations under its Subsidiary Loan Agreement and achieve the purposes of the EDP 2;

o not assign, amend, abrogate or waive any of its agreements providing

for Sub-loans, or any provision thereof, without the prior approval of Ukrexim;

o appraise sub-borrowers/sub-projects and supervise, monitor and report

on the sub-loan utilization and the carrying out by the Beneficiary Enterprise of sub-projects, in accordance with the procedures set out in this Operations Manual.

o exchange views with and furnish all such information to Ukrexim, as

may be reasonably requested by Ukrexim, with regard to the progress of its activities under the EDP 2, the performance of its obligations under its respective Subsidiary Loan Agreement, and other matters relating to the purposes of the EDP 2;

o prepare and submit to Ukrexim regular reports on Sub-loans, detailing

disbursements, interest rate charged, debt service track record, export performance of the sub-borrowers, and other Project developments as agreed with Ukrexim;

o promptly inform Ukrexim of any condition which interferes or

threatens to interfere with the progress of its activities under its respective Subsidiary Loan Agreement;

o maintain records and accounts adequate to reflect, in accordance with

sound accounting practices, its operations and financial condition;

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o furnish to Ukrexim such information concerning said records and accounts as Ukrexim shall from time to time reasonably request; and

o assume the credit risk of each sub-loan.

• The PBs will be responsible for monitoring the sub-borrowers’ compliance

with the IBRD’s procurement rules for the procurement of goods and civil works under EDP 2 sub-loans, the IBRD's environmental assessment requirements and applicable Ukrainian environmental legislation/regulations.

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III.2. Subsidiary Loan Agreement - Process Flow

6. UkrExim informs PB of SLA effectiveness

3. PB and UkrExim sign subsidiary loan agreement (SLA), based on a draft agreed with IBRD

UkrExim

1. PB writes to UkrExim to request inclusion in EDP 2 and submits proof of eligibility

PB

IBRD

5. Following a satisfactory review of the SLA, IBRD issues its no objection

2. UkrExim reviews request, verifies eligibility of PB, and confirms their eligibility as applicable

4. UkrExim sends signed SLA together with proper legal opinions, issued by both parties, to IBRD for “no objection”

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IV. SUB-LOANS (Loan Agreements between PBs and Sub-borrowers)

IV.1 Sub-Loan Terms and Conditions The following terms and conditions will apply: For sub-borrowers:

• Private ownership (defined as more than 50 percent private ownership or private control);

• Status of an exporter/prospective exporter; • Maximum debt/equity ratio of 80:20 (on the submission date of sub-

loan application form, after receipt and throughout the payback period of the sub-loan);

• Sub-borrowers should generate enough cash to maintain a minimum debt service coverage ratio of at least 1.3:1 (on the submission date of sub-loan application form, after receipt and throughout the payback period of the sub-loan);

• Certification from the relevant authorities that the sub-borrower and sub-project meet environmental laws and standards in force in Ukraine. The World Bank policy on environmental assessment (Section V) will also be complied with.

For sub-projects:

• Sub-projects must be targeted towards the generation of exports consistent with the sub-borrower’s export growth projections or development of sub-borrower’s tourism-related activity generating foreign exchange in the territory of Ukraine;

• Goods and works on the World Bank's negative list will not be eligible for financing;

• Compliance with the World Bank's procurement procedures for the procurement of goods and works to be financed under EDP 2 sub-loans.

For sub-loans:

• Sub-loans will be made for the financing of raw materials, spare parts, plant and equipment, and works, both for working capital as well as investment purposes;

• Sub-loans will be evaluated in accordance with the PB's normal project and credit evaluation guidelines and in addition will be evaluated by Ukrexim using their own credit evaluation guidelines as agreed with the Bank ;

• Sub-loans can be denominated in any currency;

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• Sub-loan pricing and maturity will be determined by the PB based on the needs of the particular sub-borrower and sub-project being financed, with the proviso that the interest rate applicable from time to time to Sub-loan must at a minimum be equal to the costs of World Bank loan funds to the PB plus an appropriate credit risk margin;

• The sum of sub-loans to any individual sub-borrower or group of connected sub-borrowers from one or more PBs will not exceed US$10 million equivalent;

• For sub-loans larger than US$5 million equivalent and for the first two sub-loans for each PB irrespective of size, prior review by the World Bank will be required;

• All sub-loans not subject to prior review can be subject to ex-post review by Ukrexim or the World Bank in order to verify compliance with the subsidiary and sub-loan agreement terms;

• No expenditures for a Sub-project by a PB shall be eligible for financing out of the proceeds of the EDP 2 if such expenditures shall have been made earlier than one hundred and eighty (180) days prior to the date on which Ukrexim shall have received the sub-loan application package, with the proviso that expenditures incurred between January 1, 2006 and the date of Loan Agreement signing up to an aggregate amount of US$30 million equivalent will also be eligible for financing;

• Sub-loan application packages shall be presented to Ukrexim on or before June 30, 2011

• Sub-loans shall be made on terms whereby the PB shall obtain, from the Beneficiary Enterprise through appropriate legal means (a Sub-Loan Agreement), rights adequate to protect its interests and those of Ukrexim, the Ministry of Finance of Ukraine, and the IBRD, including the right to:

o require the Beneficiary Enterprise to carry out and operate the

facilities financed under the Sub-project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records;

o require: (i) that the goods and civil works to be financed out of the proceeds of the sub-loan shall be procured in accordance with the provisions of Section VI of this Operations Manual; and (ii) that such goods and civil works shall be used exclusively in the carrying out of approved Sub-projects;

o inspect, by itself or jointly with representatives of Ukrexim and IBRD, if Ukrexim or IBRD shall so request, such goods and the sites, civil works, plants and construction included in the Sub-project, the operation thereof, and any relevant records and documents;

o require that: (i) the Beneficiary Enterprise shall take out and maintain with responsible insurers such insurance, against such

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risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of the goods and civil works financed out of the proceeds of the sub-loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Beneficiary Enterprise to replace or repair such goods and civil works;

o obtain all such information as the IBRD and Ukrexim shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Beneficiary Enterprise and to the benefits to be derived from the Sub-project; and

o suspend or terminate the right of the Beneficiary Enterprise to use the proceeds of the sub-loan upon failure by such enterprise to perform its obligations under its Sub-loan Agreement.

IV.2 Sub-Loan Documentation For all Sub-loans, including free limit sub-loans, the PB shall furnish to Ukrexim a complete sub-loan package comprising of:

• Credit application (see the form in Appendix IV.A)

• Such other information as Ukrexim and/or IBRD shall reasonably request.

For Sub-loans of value equal to and less than US$ 500,000 the simplified sub-loan package will be furnished. PBs will not longer be required to provide cash flow/ratio forecast calculation. Both DSCR and D/E ratios are still to be calculated as established by the submission date based on the most recent financial reporting data while the forecast for the same criteria can be provided by the PBs without supporting calculations. Compliance with forecasted ratios will be monitored by PBs in the course of sub-loan implementation and reported to Ukrexim for post review. In addition, sub-project description and sub-borrower description will not be required as separate documents as long as sufficient information is included in the respective application form.

IV.3 Sub-Loan Review

• For the first two sub-loans made by each PB and sub-loans above the free limit (US$5 million equivalent), IBRD will carry out a prior review of each sub-loan package to determine its compliance with all applicable sub-loan, sub-borrower and sub-project requirements, and inform the PB, through Ukrexim, in writing of its acceptance of the package or of any remedial action required, as the case may be.

• For all sub-loans not requiring prior review, Ukrexim will confirm satisfactory receipt of the sub-loan documentation package referred to

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above, and inform the PB accordingly. Such sub-loans will, however, besubject to ex-post review of all Sub-loan documentation by Ukrexim and IBRD for verification of compliance with all sub-borrower, sub-project and sub-loan terms and conditions. All underlying documentation pertaining to sub-loans should be maintained by the PB for a period of 3 years from the date on which the sub-loan was disbursed and should be made available to Ukrexim and/or IBRD upon request.

• Following the receipt of all necessary documents and subject to the satisfactory review of the sub-loan application, Ukrexim will issue a sub-loan number to the PB.

• Each Sub-loan shall be approved on the basis of a positive evaluation of the Sub-project and the Sub-Borrower by Ukrexim.

• The PB has the full responsibility vis-à-vis Ukrexim and IBRD to ensure that the terms of the Sub-project and all expenditures financed with the proceeds of the sub-loan are in compliance with the requirements imposed by this Operations Manual.

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IV.4 Sub-Loan Process Flow

IBRD PIU

Exporters (Beneficiary Enterprises)

First two sub-loans

VIA PIU

Participating Bank (PB)

Rest of thesub-loans -Full documentation

Obtains thesub-loannumber

Sub-loans to BeneficiaryEnterprises exceeding US$5 mlnequivalent

No objection

Obtains thesub-loannumber

Sub-loan applications

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Appendix IV.A Credit Application Form

SECOND EXPORT DEVELOPMENT PROJECT (EDP 2)

SUB-LOAN APPLICATION FORM

Submitting Institution : .........................................................................................

Submission Date : .........................................................................................

Sub-loan Amount and Currency : .........................................................................................

Sub-loan Type (investment / working capital) : .........................................................................................

1. INFORMATION ON SUB-BORROWER

1.1 Name of the Company (incl. tax number) .........................................................................................

1.2 Date of establishment .........................................................................................

1.3 Paid-in capital .........................................................................................

1.4 Ownership Name Share (Hryvnia) Share(%)

(please provide tax number in case the partner is a company) .......................... ....... .......

.......................... ....... ....... .......................... ....... ....... .......................... ....... ....... .......................... ....... ....... .......................... ....... ....... Total ....... 100.0

Legal status .........................................................................................

Foreign ownership .........................................................................................

1.5 Sector of activity .........................................................................................

1.6 Management (Information on the Board of directors and professional management, qualifications and experience)

.........................................................................................

1.7 Address (inc. tel. and fax number) Head Office :................................................................. Factory : .........................................................................

1.8 Affiliated companies / Subsidiaries .........................................................................................

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(Name, % share) 2. MARKET INFORMATION

2.1 Main products/activities of the Company .........................................................................................

2.2. Competitors (i) in the domestic market ......................................................................................... (ii) abroad .........................................................................................

2.3 Expected market development (incl. supply, demand and technological innovation)

.........................................................................................

2.4. Comments on the possibilities for export in the markets, including information about the goods (with indications of codes as per Ukrainian Classification of goods for Foreign Economic Activity), as well as characteristics of the markets to which the goods are or will be supplied

.........................................................................................

3. ECONOMIC AND FINANCIAL DATA(All data for the last three years unless otherwise stated)

t-3 t-2 t-1

3.1 Capacity, production and sales quantities of theCompany’s main products

Product 1Capacity ....... ....... .......Production ....... ....... .......Sales ....... ....... .......

Product 2Capacity ....... ....... .......Production ....... ....... .......Sales ....... ....... .......

(Table can be extended for as many products as necessary)

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3.5 Financial ratios (%)

Liquidity ratio ....... ....... .......OpWorCap1 / Sales revenues ....... ....... .......Financial debt (net) / Assets ....... ....... .......Short-term fin.debt (net) / Sales revenues ....... ....... .......EBITDA margin ....... ....... .......Financial expenses (net) / Sales revenues ....... ....... .......Debt service coverage ratio (times) ....... ....... .......

3.6 Comments on profit record and financial .........................................................................................

1OpWorCap” (Operational Working Capital) = Short-term Trade Receivables + Inventories – Short-term Trade Payables

3.2 Exports

Quantity (with indication of codes as per UkrainianClassification of goods for Foreign EconomicActivity)

....... ....... .......

Value (USD) ....... ....... .......

Share of exports within total sales quantities (%) ....... ....... .......Share of exports within total sales revenues (%) ....... ....... .......

3.3 Summary income statement (USD thousands)

Net sales revenues ....... ....... .......EBITDA ....... ....... .......Financial expenses (net) ....... ....... .......Before tax profit ....... ....... .......Net profit ....... ....... .......

3.4 Summary balance sheet (USD Thousands)

Cash, banks, securities ....... ....... .......Trade receivables ....... ....... .......Inventories ....... ....... .......Total current assets ....... ....... .......Tangible fixed assets (net) ....... ....... .......Subsidiary companies / affiliations ....... ....... .......Total assets

Short-term financial debt ....... ....... .......Trade payables ....... ....... .......Total short-term liabilities ....... ....... .......Long-term financial debt ....... ....... .......Total long-term liabilities ....... ....... .......Paid-in capital ....... ....... .......Reserves ....... ....... .......Revaluation fund ....... ....... .......Shareholders’ equity ....... ....... .......

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situation

3.7 Sales and export revenue forecasts for the duration of the Loan(in USD)

(Please insert as a table in the Appendix)

3.8. Comments on the exporting opportunities of the Company (export channels, customers, transportation and delivery, foreign partner etc.)

.........................................................................................

4. INVESTMENT PROJECT (applicable only in case of an investment loan)

4.1 Summary investment description (With capacities before/after)

.........................................................................................

4.2 Location (province) of the investment .........................................................................................

4.3 Number of employment created/preserved through the investment

.........................................................................................

4.4 Implementation timetable .........................................................................................

4.5 Total cost of investment (in USD) USD ................

4.6 Cost breakdown of total investment (in USD) Land & Construction

Import Machinery

Local Machinery

Start-up Expenses

Fixed Investment

Investment Period Interest

Working Capital Requirement

Total Investment Cost

4.7 Financing of the investment (in USD) EDP 2 Loan

Other Loan

Self Generated Funds

Cash Capital Increase

Total Financing

5. SUB-LOAN

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5.1. Loan Amount ........................................................................................ 5.2. Type of Loan (investment or working capital) ........................................................................................ 5.3 .Total Maturity (months) ........................................................................................ 5.4. Grace Period (months) ........................................................................................ 5.5. Interest rate ........................................................................................ 5.6. Security (Collateral) ........................................................................................ 5.7 Draft Sub-Loan Agreement or statement from a PB that all applicable obligations of the Sub-borrower under the subsidiary Loan Agreement are in included in the legal Sub-Loan Agreement between the PB and the Sub-borrower

6. ELIGIBILITY CRITERIA VERIFICATIONCRITERIA STATUS

6.1. Sub-borrowers private ownership % (50+) (Yes / No) 6.2 Debt service coverage ratio (> 1.3 throughout the life of the loan ) (Yes / No) 6.3. Debt to equity (< 80/20 throughout the life of the loan) (Yes / No)

6.4. Sub-borrower’s insurance coverage (Yes / No) 6.5. Sub-borrower’s management and financial capacity to carry-out the export

development project (Yes / No)

6.6. Sub-project’s technical, financial and commercial viability (Yes / No)

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7. LIST OF PROCUREMENT CONTRACTS TO BE FINANCED UNDER THE SUB-LOAN

(Please provide a short description of the item to be procured)

Description Cost (US$)

Procurement Method

Proposed date of Procurement

Country of origin of the procured item (if available)

Code of the item under Ukrainian Classification of Goods for Foreign Economic Activity

Raw materials 1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Raw materials 2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ... _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Machinery 1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Machinery 1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ... _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Civil works 1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Consulting Services

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Other _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ... _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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8. ENVIRONMENT(Attached form should be filled)

This Application Form Prepared by Name(s): .................................................................

Position(s):.................................................................

Date:.................................................................

Tel:.................................................................

e-mail:.................................................................

Signature(s):.................................................................

Sub-Loan approved by PB Credit Committee:.......................................................(Yes/No)

< Name of the Participating Bank >

Authorized Signatures

................ ............................................... ..........................

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Annex: Environmental Screening

PART A: To be completed by sub-borrower

PB: Sub-project title: Manufacturing Sector/Product:- Brief description of sub-project (nature of project, sub-project cost, physical size [site area, production per year, etc], existence of any property transfer, or on-going operations, plans for expansion of operations or new construction, potential estimated impact on production) Preliminary environmental information (list of environmental documents already available at time of screening) PART B: (To be completed by PB)

• Screening Category: • Environmental issues apparent at screening (what environmental issues are raised by the sub-

borrower/sub-project) • Reason for screening category • Compliance with pollution control standards (discuss status of compliance of current and

planned operations) • Proposed mitigation (indicate measures to be taken to address the environmental issues raised

by the sub-borrower/sub-project, how they may be incorporated into the sub-project design, and any potential covenants)

• Terms of Reference for environmental studies to be undertaken (indicate scope, time frame, and appropriate cost of any environmental analysis required)

• Community participation requirements (list any requirements under national or local laws for the sub-borrower/sub-project sponsor to inform, consult or involve the public, NGOs etc.)

• Next Steps (list actions for the PB, the sub-borrower, the environmental consultant if any)

SIGNATURESDATE

SUB-BORROWER PB LOAN OFFICER ENVIRONMENTAL SCREENER:

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V. ENVIRONMENTAL REVIEW PROCEDURES

Safeguard Implementation Procedures for Participating Banks Background

1. All sub-loans to be financed under the EDP 2 will be subjected to an environmental review process utilizing the procedures described in this Section. PBs and the Ukrexim PIU will be required to follow these procedures as part of the overall appraisal of sub-borrowers/sub-projects. These procedures are consistent with both the environmental policies and regulations of the Government of Ukraine and the World Bank (OP/BP/GP 4.01 Environmental Assessment). 2. The procedures will include the following aspects of sub-project preparation/ construction and implementation where applicable:

Preparation/Construction • Sub-project Screening • Environmental Documentation • Public Consultation • Review and Approval • Disclosure • Conditionality

Implementation

• Arrangements for Environmental Management • Reporting

3. Figure 1 presents a block diagram to overview the procedures to be followed. 4. In addition to the above, each BE using pesticides in its activities have to be consistent with both relevant policies and regulations of Ukraine and the World Bank (Operational Policy 4.09). Therefore, each BE that envisions financing of pesticides under EDP2 will be arranged, jointly with respective PB, for a pest management plan, format of which attached in the Annex G hereto. The PIU is keeping relevant Ukrainian legislation and regulations, and WB policy documents, on file and will provide them to PBs/BEs upon request.

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CATEGORY III

Enterprise

PB

Enterprise

Enterprise

PIU

I Enterprise

CATEGORY II

CATEGORY I CATEGORY IV

Figure 1 Environmental Review Process Flow (*)

- Prepares Initial Project Concept

- Satisfies Environmental Certification Requirements (Investment Incentive

certificateor other official approval/permits)

- Presents thesub-project to PB for category screening

Projects not to befinanced

Projects requiring afull EIA

Projects can proceedwithout an EIA

Projects can proceed with aPreEIA

Submit apositiveEIA Reportregarding respectivecategory

Review EIA, providesclearanceor conditionality

for clearance

Incorporates EIA recommendation(if any required) into sub-project designand presents it to PB

Review subloandocumentationand approves

Subloan is effectiveand ismonitored for environmentalcompliance

ProvidesPIU monitoringInformation

Submit theclearance letter ofLEA to PB

Enterprise

(2)

(1)

(2)(2)

(2)

(3) (4)

(7)

(9)

(6)(5)

(8)

(*) This process as depicted in the chart above is required for manufacturer, manufacturer-exporter enterprises

PB/ Ukrexim /WB

PB

24

PREPARATION/CONSTRUCTION Sub-project Screening

4. Sub-projects may be classified into one of four categories listed below:

Category I (low risk): These include sub-projects whose environmental impacts are expected to be negligible, and for which no environmental analysis is required (See Annex A for examples).

Category II (intermediate risk): These are sub-projects with impacts that can readily be identified are of modest significance in terms of magnitude, extent, or duration and can readily be addressed by standard procedures of engineering design and good practice (See Annex B for examples).

Category III (high risk): These are projects that have potentially significant impacts in terms of magnitude, duration and extent. They may require detailed analysis to determine their characteristics and the necessary measures to mitigate their effects (See Annex C for examples).

Category IV (dangerous): These are projects that are involved with highly hazardous materials and/or use or produce materials that are banned from international trade. Involvement with projects of this nature incurs an unacceptable level of corporate risk to Ukrexim and the World Bank. Annex D provides a list of projects for which World Bank financing is prohibited. 5. Subproject screening will be performed in two stages. The first stage involves the normal review by Ukrainian environmental authorities if required by Ukrainian law, to determine if Ecological Expertiza is required. The second stage of screening will be performed by the PB and confirmed by the PIU. The procedure will be as follows:

• If required by Ukrainian law, the sub-project sponsor (sub-borrower) will submit all necessary documentation to Ukrainian environmental authorities for a determination if Ecological Expertiza is required. The resultant outcome of this first stage screening is either Ecological Expertiza is required (Category III or Category IV sub-project) or Ecological Expertiza is not required (Category I or Category II sub-project).

• The subproject sponsor then submits official government documentation to the PB

indicating either: (a) Ecological Expertiza Required or (b) Ecological Expertiza Not Required, and also submits to the PB the completed first section of the Project Environmental Information Sheet (see Annex E). The PB will review this information and complete the second section of the Project Environmental Information Sheet which will include a recommendation for which the four Categories the sub-project should be considered and the reasons for this decision.

• The PB will then submit the completed Project Environmental Information Sheet it to

the PIU, who will concur with sub-project Category recommended by the PB.

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Environmental Documentation

6. Category I (Low Risk, Ecological Expertiza Not Required): If a sub-project receives this classification, no environmental assessment documentation is needed, and no further environmental review or approvals are necessary. 7. Category II (Intermediate Risk, Ecological Expertiza Not Required): For sub-projects which receive this classification, the sub-borrower will be required to prepare a simple Environmental Management Plan (EMP) as presented in Annex F, and submit it to the PB. If the enterprise has an existing operation, the sub-borrower should provide certification that all environmental licenses, permits, approvals for this activity are valid, and an indication of the expiration dates for these requirements. 8. Category III (High Risk, Ecological Expertiza Required): The sub-borrower will be required to submit the following documentation to the PB:

• A copy of the official letter indicating a “Positive Decision” by the relevant authorities (Environmental Assessment is approved)

• Any special requirements, conditions, or qualifications which accompany the “Positive Decision”

• An English language Executive Summary of the Environmental Assessment • A completed English language and Ukrainian language version of the EMP, as

presented in Annex C, which reflects all the significant environmental impacts included in the Environmental Assessment and any of the special requirements, conditions or qualifications which accompanied the “Positive Decision”

• If the enterprise has an existing operation, the sub-borrower should provide certification that all environmental licenses, permits, approvals for this activity are valid, and an indication of the expiration dates for these requirements.

9. Category IV (Dangerous, Ecological Expertiza Required): No documentation is required, since these projects will not be financed. Public Consultation

10. All Category III sub-projects must conduct a public consultation as a condition of approval for any World Bank resources. Details of the documentation required for the public consultation are provided in the EMP as described in Annex F under Item D (Consultation

with local NGOs and project-affected groups). Review and Approval

11. Category II: The PB will review and approve the EMP. From time to time the PB may seek the guidance from the PIU in offering their approval. 12. Category III: The PB will review the EMP making sure that all items identified in the Ecological Expertiza as well as any conditions, requirements, and qualifications are properly

26

incorporated. It will then submit the EMP to the PIU with a recommendation for approval. The PIU will review this material and provide a conditional approval. The PIU will then send the English Language versions of the: (a) EMP, (b) Executive Summary of the Environmental Assessment, (c) copy of the official letter indicating a “Positive Decision” by the relevant authorities (Environmental Assessment is approved), and (d) documentation of any special requirements, conditions, or qualifications which accompanied the “Positive Decision” to the World Bank for the final approval. If deemed necessary, the World Bank may request an English language version of the entire EA document. The World Bank will review the material and provide the final approval. No release of World Bank funds are permitted for the PB for category III sub-projects until the official World Bank approval is provided.

Disclosure

13. For Category III sub-projects, the sub-borrower will place a Ukrainian language copy of the EMP in a public location (municipal building, library etc.) near the sub-project site and provide a letter to the PB documenting the location where the EMP was placed and the date of the disclosure. In addition, the PIU will send to the World Bank an English language version of the sub-borrower this disclosure letter. Conditionality

14. All sub-loan agreements for Category II and Category III subprojects must include a condition requiring the sub-borrower to implement the EMP. IMPLEMENTATION

Arrangements for Environmental Management

15. For category II and III sub-projects, institutional organization and arrangements must be implemented in accordance with the description provided in the EMP (see Annex F: Format for an Environmental Management Plan, Section C: Institutional Arrangements).

16. The sub-borrower will be responsible for insuring implementation of the EMP is in accordance with procedures described therein. The PB should check this during their supervision visits. The PIU may wish to engage an independent consultant from time to time to verify implementation is proceeding in accordance with the loan agreement, particularly for Category III sub-projects.

Reporting

17. The PB should include a section in their normal supervision reports indicating whether the sub-borrower is complying with all requirements of the EMP, if any environmental issues developed during the reporting period, and, if so, how those issues were or are being addressed.

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ANNEX A - EXAMPLES OF CATEGORY I (Low Risk) SUBPROJECTS

This category includes the sub-borrowers/sub-projects which have no environmental impacts and do not belong to categories II, III and IV. Some examples of this category are: 1. Manufacture of wood products/small scale furniture manufacturing,

carving, crafting, etc., 2. Small scale stone crafting, 3. Small scale meal fabrication and upgrading, 4. Small scale instruments and hardware manufacturing, 5. Software development and manufacturing, 6. Establishment and equipping of art, design and telecommunications studios, 7. Purchase of computer equipment, 8. Purchase of transportation equipment.

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ANNEX B - EXAMPLES OF CATEGORY II SUBPROJECTS

(Intermediate Risk - Requiring EMP)

1. Facilities designed for production of chemicals, production of lubricants from oil or processing of intermediary products, and recovery of waste oil;

2. Facilities where pesticides and pharmaceutical products, paints and waxes, elastomer based products and peroxides are produced or where elastomer based products are processed;

3. Soap or detergent production facilities; 4. Production or repairing of metal materials for railways or aircrafts; 5. Iron & steel or nonferrous metal facilities; 6. Textile; 7. Engines and motor vehicles production or assembly facilities; 8. Glass or fiberglass production facilities 9. Hide processing facilities (excluding facilities obtaining final products from

processed hide) 10. All kinds of paper, cardboard or pasteboard production facilities; 11. Tire coating facilities with a capacity of 100,000 units/per year and over; 12. Tire production facilities (inner tubes and tire covers for motor vehicles and airplanes,

columns, tire cord, etc.); 13. Projects related to animal and plant products; 14. Mining Projects.

a) facilities with a capacity of 5,000 m3/year and above for the extraction and processing of marble blocks or pieces, decorative stones, and facilities with an annual capacity of 100,000 m2 and above for cutting, processing and polishing marble;

b) extraction of a raw material, or any kind of processing thereof, in accordance with the Regulation for Quarries (25.000 m3/year and above)

c) extraction of 50,000 tons/year and above of salt, and/or all sorts of salt processing facilities

15. Clinker grinding facilities or facilities producing ready-mixed concrete or pre-stressed

concrete components 16. Facilities producing brick or roof tiles (workshop-type of facilities excluded) 17. Facilities producing ceramic or porcelain (workshop-type of facilities excluded) 18. Lime factories

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ANNEX C - EXAMPLES OF CATEGORY III SUBPROJECTS (High Risk - Requiring full EIA)

1. Facilities for melting iron and steel; 2. Facilities for melting non-ferrous metals; 3. Chemical plants at industrial scale; 4. Shipyards for the purpose of building, maintaining and repairing of cargo and

passenger ships; 5. Meat Processing facilities; 6. Forest products and cellulose plants; 7. Cement plants or clinker production facilities 8. Accumulator and battery production facilities 9. Sugar factories

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ANNEX D Category IV Projects

for which World Bank Financing is Prohibited

• All kinds of military hardware • Trade in wildlife products regulated under the CITES Convention • Release of genetically altered organisms into the natural environment • Manufacturing, formulation, distribution and sales of banned pesticides and herbicides

(such as World Health Organization’s classes IA and IB as well as class II products whose toxicity level is equivalent to the WHO IA/IB categories, e.g. with oral LD50 for liquids = 200 mg/kg body weight or less)

• Drift seine netting in the marine environment • Use or processing or production of any products utilizing radioactive materials • Hazardous waste storage, treatment, transport, or disposal • Manufacture of electrical equipment and appliances containing chlorofluorocarbons

(CFCs), halons and other substances regulated under the Montreal Protocol • Manufacture of electrical equipment containing polychlorinated biphenyls (PCBs) in

excess of 0.005 % by weight of the total fluid content • Manufacture of asbestos products • Manufacture or production of tobacco products and tobacco processing equipment • Production, marketing and distribution of strong alcoholic beverages (other than beer,

wine or soft alcoholic drinks).

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ANNEX E Project Environmental Information Sheet

SECTION I (To be Completed By the Sub-Project Sponsor) Project Description: Describe the nature of the investment: equipment purchases, civil works construction, removal/demolition of existing structures etc. Project Location Description: Describe the general land use characteristics at or near the project site. Indicate nearest population centers (villages, cities etc.), any surface waters (lakes, rivers, etc.), any areas of particular human or ecological sensitivity or cultural interest (hospitals, schools, religious houses of worship, historical sites or monuments, natural areas protected by the government or international agreement, etc.) Environmental FactorsAir Pollution: Indicate any releases of gases to the atmosphere expected from project implementation-either during construction or project operation. Provide information about if these releases will be controlled, and if so, the nature of the control.

Water Pollution: Indicate the nature of any wastewater discharges to either surface waters or to groundwaters anticipated from project implementation-either during construction or project operation. Provide information about the nearest drinking water sources. Indicate if these discharges will be treated, and if so, the nature of the treatment that will be used. Solid Wastes: Describe the nature of solid material wastes that will be produced either during project construction or operation phases. Distinguish between non-hazardous and hazardous wastes. Provide information about how each of these types of solid materials will be managed (e.g. recycled, used as a raw material elsewhere, burial, incineration, etc.).

For an Existing Operation, provide copies or details that all environmental permits, licenses, approvals are valid and the expiration dates for these requirements. SECTION II (To be Completed by the PB) Does the project comply with all environmental regulations concerning atmospheric emissions, effluent discharges and solid waste management? If not, please provide an explanation. Will the project present a risk of significant impact to any sensitive areas of the natural and human environment? If the response is positive, please describe the nature of the impact and an assessment of the risks involved? Does the sub-borrower have an existing system in place for environmental management, or is such a system currently being developed? If not, please provide describe provisions for effective management proposed for the sub-loan.

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For an Existing Operation are all environmental permits, licenses, approvals valid and are the expiration dates in a reasonable time in the future. Does the sub-borrower have a record of environmental penalties, legal judgments, etc. related to their environmental performance, or any outstanding liabilities related to their environmental management? If yes, please elaborate. RECOMMENDED CATEGORY RATING Please describe the basis upon which this Category rating is recommended

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ANNEX F Format for an Environmental Management Plan

Project Description

Present a brief description of the subproject. Include the nature of the investment, the location, and any characteristics of the area that are of particular interest, e.g. near a protected area, area of cultural, historical, religious interest etc. Also, very briefly describe the general land use characteristics (farming, small industry etc.), and the location(s) of the nearest population centers.

A. MITIGATION PLAN

Phase Issue Mitigating Measure

Cost of Mitigation (Only if

Substantial)

Responsibility* Start Date End Date

Construction

•••••

•••••

•••••

Operation

••••

••••

••••

• Items indicated to be the responsibility of the contractor shall be specified in the bid documents

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B. MONITORING PLAN

Phase What parameteris to bemonitored?

Whereis the parameterto be monitored?

Howis the parameter tobe monitored/ type

of monitoringequipment?

Whenis the parameter to bemonitored-frequencyof measurement or

continuous?

Monitoring CostWhat is thecost of

equipment orcontractor charges toperform monitoring

Responsibility StartDate

EndDate

Construct

Operate

I.

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ANNEX G

Format for pest management plan

Section I (to be completed by the sub-borrower)

Participating bank:Sub-borrower:Sub-project title:Sub-project description: (description of the nature of the investment: equipment purchases, civil works construction, removal/demolition of existing structures,purchaseor use of pesticides, herbicides, etc.).Description of sub-project location: (description of thegeneral land use characteristics at or near thesub-project site; indication of thenearest populationcenters (villages, cities, etc.), proximity of any surface waters (lakes, rivers, etc.), any areas of particular human or environmental sensitivity or cultural interest(hospitals, schools, religious houses of worship, natural areas protected by the government or international agreements, etc.).

List of pesticides used by the sub-borrower

Activeingredient and/orformulatedproducts

Nameof PlantProtectors

(PPs)

Mainuse

Commonname Content

Classofhazard(WHO)

Areaofapplication

Maximumallowableconcentrationfor usageaccordingtoexisting

environmental legislation

Actualusage rate

Producer Certificateof stateregistration, dateofregistration, validity

1 2 3 4 5 6 7 8 9 10 11Pesticidesused by thesub-borrower12

Pesticidesproposed to financeunder EDP2 funds12

1. Number in order.2. To indicate the name of PPs.3. To indicate the main use of pesticide (herbicide, fumigant, fungicide, etc.). In most cases only a single use is given. This isonly for identification purposes and

does not exclude other uses.4. Common name of theactive ingredient approved by the International Organization of Standardization (ISO). To indicate formulation for formulated products in

which theactive ingredient is diluted with other materials (usually less toxic).5. To indicate the content of active ingredient in unit of measurement (g/kg, g/l, g/ml).

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6. To indicate the class of hazard, determined due to theclassification recommended by the World Health Organization (WHO). Theclassification and guidelines toit are resulted in the WHO publication “Recommended Classification of Pesticides by Hazard and Guidelines to Classification”. Copies of the classification,which is update annually, are available in the Sectoral Library of the World Bank or to the electronic addresshttp://www.who.int/ipcs/publications/pesticides_hazard/en/

7. To indicate agricultural crop or object the PP is used for (rye, wheat, oat, soya etc.).8. To indicate maximum allowable concentration for usage according to existing environmental legislation (per area unit: l/ha, kg/ha etc).9. To indicate actual usage rate.10. To indicate the producer of PP.11. To indicate the series, number, date of issue of the certificate of state registration and/or quality certificate and its period of validity

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Environmental factors

The impact on the health of handlers including those who store, sell, transport and apply pesticides:To give information regarding minimization of this factor’s impact, namely:

• Do employees who handle pesticides as part of their normal work responsibilities receive any regular medical examination? If so, pleasedescribe.

• Is a logbook or other written record of pesticide application maintained? If so, what records are kept and who is responsible for this?• Are pesticides used by Sub-borrower/ planed for procurement under EDP2 funds permitted for usage within Ukraine and eligible for financing

under EDP2∗

The impact on the health of food consumers:

∗For Sub-borrower information

The Bank does not finance formulated products that fall in World Health Organization’s (WHO) classes IA and IB, as well asClass II products whose toxicity level is equivalent to the WHO IA / IBcategories, e.g. with oral LD50 for liquids = 200 mg/kg body weight or less(see table below).

LD 50 for the rat (mg/kg body weight)Hazard Class

Oral DermalSolids* Liquids* Solids* Liquids*

Ia Extremely hazardous 5 or less 20 or less 10 or less 40 or lessIb Highly hazardous 5 - 50 20 - 200 10 - 100 40 - 400II Moderately hazardous 50- 500 200 - 2000 100 - 1000 400 - 4000III Slightly hazardous Over 500 Over 2000 Over 1000 Over 4000

* The terms"Solids" and "Liquids" refer to thephysical stateof theactive ingredient being classified.

The method for calculating the toxicity level for a formulated product isprovided in the WB’sonline Pest Management Guidebook, at the following linkhttp://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTARD/EXTPESTMGMT/0,,contentMDK:20298585~menuPK:586874~pagePK:64168445~piPK:64168309~theSitePK:584320,00.html#1Selection

The Bank decline to finance pesticides which contain active ingredients from the WHO IA/IB classes regardless of how they are formulated, on the grounds that most of the commercially availableformulations of these materials are quite hazardous and there are suitable alternatives for almost any application. However, if there is a clear technical case for doing so, and if the toxicity level of theformulated product is under the WHO 1A/1B cut-off point, the Bank could financesuch a product.

The Bank will finance formulations of products containing active ingredients fromClass II, but only if it can be ensured that they will only be handled by appropriately trained and equipped people andwith appropriate safeguards for distribution, storage and disposal. So, they can be financed if the country has well-established and effective legal and regulatory systems addressing these points (e.g.through a certification/licensing program). If the country does not have adequate national control systems, the Bank would normally not finance these products. However, in special cases it could bedone if clear and concretemeasuresarebuilt into the project to ensure that the necessary restrictionswill be met for access to/useof the particular materials to be procured). Exceptions can be made forspecific formulations which are very low hazard because the active ingredient is at very low concentration, but the case should be made that there is no suitable alternative using an active ingredientwhich falls below Class II.

However, there are also a few products that the Bank normally don’t finance even though they don’t fall into WHO Classes Ia or Ib, because they have hazardous featureswhich make themunacceptabledespite having a moderate oral toxicity (oral LD-50, which is the main criterion for WHO classification). This could include human health hazards or environmental hazards. For example, the Bankdon’t finance the herbicide Paraquat which falls into WHO Class II (oral LD 50 is 150 mg/kg) but is very easily absorbed through the skin and has high toxicity through that route, and for which there isno known antidote. Another example is granulated slow-release formulations of somepesticides, which are low hazard to peoplebut present a major threat to birds.

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To give information regarding minimization of this factor’s impact, namely:- warning the food consumers about possible negative impact on their health cause of by pesticides application and regarding their minimization

(foods washing, etc.);- usage of pesticides which minimize the residue and are the least harmful for food consumers, etc.

Air and surface waterscontamination:To give information regarding minimization of this factor’s impact, namely:

- application of pesticides which are the least hazardous;- observance of rules of effective storage and application of pesticides;- planning activities and implementation of optimal volumes and time schedules of application of pesticides, etc.

Wastes: To indicate the nature of wastes produced during the use of pesticides. To describe separately non-hazardous and hazardous wastes. Toprovide information on how each of these types of wastes will be handled (recycling, utilization, etc.).

For existing operations: To provide copies of all environmental permits, licenses, registration certificates, approvals, etc. To provide vendor’s licenseto wholesale and retail trade of the pesticides (indicating the series, number, date of issue of the license and its period of validity). Mentioned documentsshould be valid and contain expiration dates for these requirements. Copies of documents that confirm operations aimed at minimization of negativeenvironmental impact and its consequences, and copies of relevant documents (certificate of state registration, quality certificate, etc.) for storage,selling, transportation and applying of pesticides are to be provided.

To provide information regarding applying of the integrated pest management (IPM) methods or approaches:(i) does sub-borrower apply pesticides based on a predetermined schedule, or does sub-borrower monitor pest populations in the field in order to

determine when pest numbers are high enough to justify pesticide application? If monitoring of populations is practiced, please describemonitoring methods and the thresholds (factors) which trigger pesticide application;

(ii) does sub-borrower monitor numbers of beneficial species in the field (e.g. predatory insects, spiders). If so, which ones and how?(iii) does sub-borrower use any non-chemical methods to reduce pest populations and impacts? If so, please describe;(iv) when applying pesticides, does sub-borrower take any specific precautions to reduce contamination of soil or water, or to reduce impacts on

beneficial species? If so, please describe.

Section (to be completed by the participating bank)Pleaseprovide information:

(i) does the sub-borrower currently use or propose to purchase any pesticides which are not eligible for project financing?(ii) does the sub-borrower appear to rely entirely or mainly on chemical control with no elements of IPM approach?(iii) does the sub-borrower have (or lack) adequate facilities to ensure safe storage of pesticides?

39

(iv) does thesub-borrower have an adequateplan for disposing of excess pesticides and empty containers?(v) does thesub-borrower have a record of environmental penalties, legal judgments, etc. related to itsenvironmental performance, or any

outstanding liabilities related to relevant activities aimed at minimization of environmental impact and its consequences? If yes, pleaseexplainin details.

For each question where theanswer indicates an environmental or safety risk, a specific mitigation plan should beproposed.

Date, signatures of empowered person on behalf of PB and sub-borrower, seal

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C. INSTITUTIONAL ARRANGEMENTS A brief narrative discussion supported by organizational charts detailing:

• Institutional responsibilities and procedures for mitigation and monitoring and how they are linked for environmental management

• Environmental information flow (reporting—from who and to who and how often) D. CONSULTATION WITH LOCAL NGOs AND PROJECT-AFFECTED GROUPS (ONLY CATEGORY III PROJECTS)

Provide documentation of the following:

• Manner in which notification of the consultation was announced: media(s) used, date(s), description or copy of the announcement

Date(s) consultation(s) was (were) held • Location(s) consultation(s) was (were) held • Who was invited

� Name, Organization or Occupation, Telephone/Fax/e-mail number/address

(home and/or office)

• Who attended

� Name, Organization or Occupation, Telephone/Fax/e-mail number/address (home and/or office)

• Meeting Program/Schedule

� What is to be presented and by whom

• Summary Meeting Minutes (Comments, Questions and Response by Presenters) • List of decisions reached, and any actions agreed upon with schedules and deadlines and

responsibilities.

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VI. PROCUREMENT PROCESS

VI.1 General 1. The procurement of goods and civil works should be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004. The procurement arrangements under sub-loans to private sub-borrowers through PBs for goods (including related non-consulting services) and civil works are described in this Section. The IBRD’s review process is presented in Table VI.1. 2. PBs will be responsible for ensuring that the procurement rules for sub-loans are complied with the sub-borrowers. Ukrexim will be responsible for reviewing and monitoring the compliance with the procurement rules by the PBs and their sub-borrowers. Ukrexim will keep the records of the completed procurements which are subject to World Bank’s post.

3. PBs will be responsible to send the copy of all the relevant documents of the procurement performed by the sub-borrowers to Ukrexim to facilitate the World Bank’s reviews. For the procurement under commercial practices, the procurement related documents include, as applicable, advertisements, short lists, number of quotations, number of bids, copy of offers (invoices), specifications, evaluation reports, evidence which proves the contractor or supplier is not a subsidiary or affiliated company of the sub borrower, invoices, and other documents indicating that private sector commercial practices are applied transparently and competitively. 4. The contracts between sub-borrowers and their subsidiary or affiliated companies will not be eligible for financing out of the Loan. 5. The procurement of the second hand goods is not eligible for financing out of the Loan.

VI.2 Procurement through Commercial Practices and Thresholds 6. Goods. For contracts below US$4 million equivalent, established Local Private Sector Commercial Practices should be followed in accordance with paragraph 3.12 of the Procurement Guidelines. Sub-borrowers (Beneficiary Enterprises) should generally seek bids from a list of potential suppliers broad enough to ensure competitive prices. Care has to be taken of other relevant factors such as time of delivery, efficiency and reliability of the goods and availability of maintenance facilities and spare parts thereof, and in case of non-consultant services, of the quality and competence of the parties rendering them. Advertising in the local and international press will not be required. All procurement of goods and related services (installation and maintenance) under contracts equal to or above US$4 million equivalent will be subject to prior review. 7. Civil works. For civil works up to a threshold of US$4 million per contract, established local private sector commercial practices will be followed in accordance with

42

paragraph 3.12 of the Procurement Guidelines. Sub-borrowers should generally seek bids from a list of potential contractors broad enough to ensure competitive prices. Care has to be taken for the capacity of the contractor and the quality of the works. For contracts US$4 million equivalent and above, International Competitive Bidding (ICB) would be required for individual contracts. All ICB contracts shall be subject to prior review by the World Bank. 8. For a detailed explanation of the procedures acceptable to the IBRD and for copies of standard bidding documents refer to the IBRD publications, "Procurement of Goods” and "Procurement of Works" (standard bidding documents for ICB contracts), copies of which may be obtained from Ukrexim. The World Bank standard bidding documents can also be downloaded from the web site www.worldbank.org.

Table VI.1 Thresholds for Procurement Methods and Prior Review (in US$ equivalent)

Expenditure Category Thresholds

ICB Commercial Practice

Sub-loans

Goods � 4.0 < 4.0 Civil works � 4.0 < 4.0 Prior Review All

contracts First contract for each

PB

VI.3 ICB (International Competitive Bidding) --For Goods and Works contracts above US$4 million equivalent

9. The objective of International Competitive Bidding (ICB), as described in the "Guidelines for Procurement under IBRD Loans and IDA Credits", is to provide all eligible prospective bidders with timely and adequate notification of a sub-borrower's requirements and an equal opportunity to bid for the required goods and works. 10. All procurement of goods and works under contracts equal to or above US$4 million equivalent will be subject to IBRD prior review and must be procured under ICB. A highly summarised version of the steps to be followed by sub-borrowers in the case of ICB is given below: Preparation of Bid Documents. Send bid documents to IBRD for review and approval via PB and Ukrexim/PIU. Any further amendments to the bid documents will also need IBRD clearance.

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• Specific Procurement Notice (SPN)

- Sub-borrower advertises the SPN in national newspaper. - Sends, via PB and PIU, a copy of the notice to IBRD for publication

in the Development Business (an IBRD publication) and dgMarket (online) minimum five (5) days before its publication in the local media. The sub-borrower may also directly send the SPN to the suppliers, prospective bidders and other interested parties; this is optional but is recommended for greater publicity.

• Invite Bids from Public. Allow at least 6 weeks to the prospective bidders

to prepare their bids. • Open Bids at the specified time in public and announce the name and

amount of each bidder. All other information contained in the bid document remains confidential. Record the minutes of bid opening and send it to the IBRD immediately.

• Evaluation and Comparison of Bids. Send the bid award recommendation with an evaluation report to IBRD via PB and PIU for review and approval (Use sample evaluation report format of IBRD).

• Award the contract. After award, send two copies of the signed contract to IBRD via PB and Ukrexim/PIU before any disbursement is requested.

11. For a detailed explanation of the procedures acceptable to the IBRD and for copies of standard bidding documents refer to the IBRD publications "Procurement of Goods or Works", "Procurement of Goods" (standard bidding documents) and "Procurement of Works" (standard bidding documents for larger works), copies of which may be obtained from Ukrexim or from the World Bank’s web-site (www.worldbank.org).

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VI.4 ICB Process Flow

1.Prepares bid documents and sends to IBRD2.Sends copy of Specific Procurement Notice

3.Approves & informs beneficiary enterprise via PIU

4.Advertises Specific Procurement5.Invites bids6.Opens documents in public7.Evaluates bids

8.Sends evaluation report and recommendation to IBRD

9.Cleares selected bid and informs beneficiary enterprise

10.Enters into contract with supplier/contractor11.Informs PB12.Sends copy of contract to IBRD

Beneficiary Enterprise

Via PB and PIU

IBRD

Beneficiary Enterprise

Via PB and PIU

Via PB and PIU

Via PB and PIU

Beneficiary Enterprise

IBRD

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VII. DISBURSEMENT PROCESS

VII.1 Disbursement Process For Sub-Loans 1. This section describes the disbursement rules applicable to EDP 2 sub-loans. Disbursements shall be made for 100% of Sub-loans. 2. Expenditures for goods and civil works on the IBRD’s negative list and expenditures made earlier than one hundred eighty (180) days prior to the date on which Ukrexim shall have received the sub-loan application package from a PB will not be eligible for financing, with the proviso that expenditures incurred between January 1, 2006 and the date of Loan signing will be eligible for financing up to an amount of US$30 million. 3. To facilitate the disbursement of funds, the PB shall nominate one branch or unit, and inform Ukrexim accordingly, to be responsible for transmitting the applications and monitoring disbursements. 4. Once a PB has been notified by Ukrexim that a sub-loan package has been approved for disbursement, in order to realize a disbursement,

(a) the PB shall furnish to Ukrexim a Disbursement Request, a sample of which is provided in Appendix VII.A to this section. Since the disbursements will be made for specific contractual expenditures under each sub-loan, multiple Disbursement Requests may be submitted under a sub-loan. The Disbursement Request shall be signed by two authorized representatives of the PB. Moreover, the name and number of the respective sub-loan agreement and the Subsidiary Loan Agreement signed by Ukrexim and the PB shall be stated in the Disbursement Request. (b) Disbursements can be made in any one of the following ways, and the preferred option should be stated in the Disbursement Request: (i) Reimbursement by Ukrexim (or IBRD in case of large contracts) to the PB of eligible payments already made by the PB to the Beneficiary Enterprise; (ii) Direct payment by Ukrexim (or IBRD in case of large contracts) to the supplier of goods and civil works for eligible contracts under the sub-loan, upon such a request by the PB; (iii) Special Commitment issued by IBRD to reimburse accepting banks for payments made or to be made under Letters of Credit;

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VII.2 Disbursement Process Flow

2. Reimburses BE for 1. Applies with documentation.invoices already settled

3. PIU reimburses PB from 2(a). Applies for disbursement withSpecial Account supporting documentation

3(a). PIU disburses funds from theSpecial Account to thesupplier.

4.IBRD replenishes PIU’s 3(b). Applies for direct disbursement/Special Commitment.Special Account

4(a). For amounts > $5 million, IBRD may disbursefunds directly to supplier.

4(b).IBRD issues Special Commitment

Supplier

IBRD

Accepting Bank(may be thePB)

Beneficiary Enterprise (BE)

PB

PIU

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Appendix VII.A SAMPLE DISBURSEMENT REQUEST

Date Ukrexim Bank Kyiv

DISBURSEMENT REQUEST Second Export Development Project (EDP 2)

Particiapting Bank : .… Bank Subsidiary Loan No : … dated : … Beneficiary Enterprise : …Ukrexim Sub-loan Number : …Disbursement Request Number : …

In accordance with …. of the Subsidiary Loan Agreement dated ….., for the intermediation of the Second Export Development Project provided by IBRD, we hereby request you to make a payment in the amount of US$ …. and in the manner specified below. Reimbursement by Ukrexim of eligible payments already made by …. Bank to (Name of the Beneficiary Enterprise);

Name of the Bank : …. Account Number : ….

We confirm the eligibility of (Name of the Beneficiary Enterprise) and the expenditures to be financed with the above requested payment. Please find the required documentation attached. The payment herewith requested, once made, shall constitute a disbursement under the above mentioned Subsidiary Loan Agreement and shall create a valid and binding obligation upon …Bank to make repayment of principal amount together with the interest and all other applicable charges specified in the Subsidiary Loan Agreement.

Yours faithfully,

BANK

Name Name Signature Signature

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DETAILS OF THE PAYMENT REQUEST

Subsidiary Loan No: Expenditure Category: Goods

Ukrexim Sub-loan No: Works

Sub-project No:

Name of Sub-borrower:

Total Amount PreviouslyPaid to this Sub-borrowerunder this sub-loan

Country Names & Addresses Contract or Purchase Brief Descriptionof Total Total Amount of Eligi Invoice Amount USD Remarks

of the of Contractors/ Order No. & Date (or Goods/Works Currency Amount of Invoices Covered bility Eligible for USD/contractcurrency Exchange

Equi

Suppliers Suppliers other Ref.) financed/to befinanced Contract by Application % Financing Rate valent

1 Ukraine

2 Ukraine

3 Ukraine

4 Ukraine

5 Ukraine

6 Ukraine

Total Amount ofInvoices Total Invoice Amount USD

Covered by Eligible TotalApplication for Financing Equivalent

Ukrexim Sub-loan No: Ukrexim shall give the number

Sub-project No: PBs shall give the number

Expenditure Category For the expenditures made for goods and/ or works related box above shall be selectedSeparate work sheets shall be prepared for goods and works

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Appendix VII.B: IBRD Negative List (List of Items Ineligible for Financing under the EDP 2) The purpose of the EDP 2 is to finance inputs for processing into exportable products, and therefore such items as military hardware, luxury goods, and environmentally hazardous goods are ineligible for financing under the EDP 2. These include: 1. All kinds of military hardware; 2. Luxury goods for consumption purposes2;

3. Nuclear reactors, and parts thereof; 4. Tobacco, unmanufactured or manufactured; 5. Tobacco processing machinery; 6. Trade in wildlife and wildlife products prohibited under the CITES convention; 7. Release of genetically altered organisms into the natural environment; 8. Drift seine netting in the marine environment; 9. Radioactive products; 10. Hazardous waste storage, treatment and disposal; 11. Manufacturing of equipment and appliances containing CFCs, halons and other

substances regulated under the Montreal Protocol; 12. Manufacturing of electrical equipment containing polychlorinated biphenyls

(PCBs) in excess of 0,005 % by weight; 13. Manufacturing of asbestos-containing products; and 14. Pesticides that fall in World Health Organization’s classes IA or IB.

2 Luxury goods for consumption by the Beneficiary Enterprise itself (e.g., purchase by the Beneficiary Enterprise of a luxury car for one of its managers); inputs into the production of luxury consumption goods for export are eligible.

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VIII. ROLE OF THE PROJECT IMPLEMENTATION UNIT

On the part of Ukrexim, the EDP 2 will be implemented under the overall management of Mr. Ildar Usmanov, Head of Export Development Department and EDP 2 Program Manager. The day-to-day responsibility for EDP 2 administration lies with the EDP 2 Project Implementation Unit (PIU) within Ukrexim. The general responsibilities of the PIU will include: • Coordination And Information Management

- the administration of subsidiary loan agreements; - submission to the IBRD of those sub-loan proposals requiring its prior approval; - assists PBs in promotion and marketing of the EDP 2 to Beneficiary Enterprises, as

required; • Advising PBs And Beneficiary Enterprises

- providing assistance and proactive advice to PB and sub-borrowers on all aspects of the EDP 2, including terms and conditions, procurement, disbursement, and environment procedures.

• Monitoring And Reporting

- maintaining sub-loan files; - monitoring, on an ex-post basis, the eligibility of sub-loans below the free limit; - carrying out periodic analyses of the subsidiary loans and associated sub-loan

portfolios; - reporting3 to the IBRD quarterly on the performance of the credit line, including:

• sub-loan commitments and disbursements; • subsidiary loan and sub-loan portfolio performance for the period; • a report on sample sub-loans reviewed indicating compliance with sub-loan

eligibility criteria; and • Accounting And Auditing

- The PIU is responsible for maintaining the EDP 2 accounting system and providing confirmation of the proper receipt and use of EDP 2 funds in accordance with the EDP 2 Loan Agreement between Ukrexim and the IBRD. This system should ensure

3 The PBs will be required to report to the PIU, providing the information needed for the PIU to comply with its reporting requirements to the IBRD. Sub-loan files, to the extent not already delivered to the PIU as part of the standard sub-loan documentation package, will be available on demand for PIU and IBRD inspection.

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timely and accurate accounting of all transactions under the EDP 2 and clear presentation of financial information;

- Ensuring that audits of the EDP 2 financial statements or reports are submitted to the IBRD;

- Submitting semi-annual, and annual audit reports for each PB to the IBRD no later than five months after the close of each six-month period. The PB audit reports should be accompanied by certification letters from the PBs’ external auditors that they are in compliance with the eligibility criteria specified in the Subsidiary Loan Agreement.

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Appendix VIII.A PB Reporting to the PIU – Sample Forms

EDP 2 FINANCIAL REPORT-1QUARTERLY

Date

Sub-loan drawdown status

Customer Sub-loan Sub-loan Sub-Loan Disbursement On-lending Initial Original Sub-loan Sub-loan Sub-loan Sub-loannumber origination amount request Interest Sub-Loan Sub-loan amount amount o/s (US$) classification

date per Sub-Loanagreement

number rate* Interestrate**

term(months)

disbursed(US$)

repaid (US$) ***

Customer 1 1 11/11/2005 2 60 180,000.00 0.00 180,000.00 ACustomer 1 4 11/29/2005 4 60 120,000.00 20,000.00 100,000.00 ACustomer 1 4 12/16/2005 5 66 50,000.00 0.00 50,000.00 A

350,000.00 330,000.00

Customer 2 2 10/23/2005 3 36 2,210,000.00 100,000.00 2,110,000.00 ACustomer 3 3 11/28/2005 1 24 240,000.00 240,000.00 0.00 A

Cumulative subsidiary loan drawdown 2,800,000.00 360,000.00 2,440,000.00 -

(*) PB’s interest rate(**) Sub-borrower’s interest rate(***) In accordance with the regulations of the Central Bank of UkraineNote: Re-loaned amounts should not be placed in the above table but on a separate reporting sheet with the same format

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EDP 2 FINANCIAL REPORT-2 QUARTERLY

Date

Sub-loan procurement status

Goods Works Total Commercial Commercial Working

Customer practice ICB Total ICB practices Total capital Investment Sub-borrower 1 180,000.00 - 180,000.00 - - - 180,000.00 - Sub-borrower 1 - - - 120,000.00 120,000 120,000.00 - Sub-borrower 1 - - - 50,000.00 50,000 - 50,000.00Sub-borrower 2 - - - - 2,210,000 - 2,210,000.00Sub-borrower 3 240,000.00 - 240,000.00 - - - 240,000 -

420,000.00 - 420,000.00 - 170,000.00 2,380,000.00 540,000.00 2,260,000.00

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EDP 2 FINANCIAL REPORT-3ANNUALLY

Date

Sub-borrower performance indicators and Incremental exports generated

IncrementalSub-loan Sub-loan Debt Coverage Ratio Debt- Equity Export Values (000 US$) Exports Environment

Sub-borrower number Type Year Projection Realization Projection Realization Projection Realization Generated Category ProcurementSub-borrower 1 1 2007 (A)

2008 (B) B-A2009 (C) C-B2010 (D) D-C

Sub-borrower 1 1 2007 (A)2008 (B) B-A2009 (C) C-B2010 (D) D-C

Sub-borrower 2 4 2007 (A)2008 (B) B-A2009 (C) C-B2010 (D) D-C

Sub-borrower 3 2 2007 (A)2008 (B) B-A2009 (C) C-B2010 (D) D-C

Sub-borrower 4 3 2007 (A)2008 (B) B-A2009 (C) C-B2010 (D) D-C

(****) On FOB basis

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EDP 2 FINANCIAL REPORT-3 --- Continued ANNUALLY

Sub-loan in arrears, if any

1- 2- 3-

Additional Information about the performance of Sub-borrowers and Sub-projects

Sub-borrower 1 Ltd:

Sub-borrower 2 Ltd:

Sub-borrower 3 Ltd:

Sub-borrower 4 Ltd:

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EDP 2 FINANCIAL REPORT – 4SEMI-ANNUALLY

Mid-Year Certificate

Independent Auditor’s Certificate of Compliance

Ukrexim Bank Kyiv

Based on a limited review of the financial statements prepared in accordance with applicable Ukrainian accounting standards (specify the source of the standards) of the [Bank] for the six months ended June 30, [Year] conducted by us and as required under the Second Export Development Project (EDP 2) Subsidiary Loan Agreement between Ukrexim and [Bank] dated [Date] we hereby certify that the [Bank] is in compliance with all prudential regulations prescribed by the National Bank of Ukraine as of June 30, [Year].

End-Year Certificate

Independent Auditor’s Certificate of Compliance

Ukrexim Bank Kyiv Based on our audit of the financial statements prepared in accordance with applicable Ukrainian accounting standards (specify the source of the standards) of the [Bank] for the year ended December 31, [Year] conducted by us and as required under the Second Export Development Project (EDP 2) subsidiary Loan Agreement between Ukrexim and [Bank] dated [Date] we hereby certify that the [Bank] is in compliance with all prudential regulations prescribed by the National Bank of Ukraine as of December 31, [Year].